"Our third quarter achievements solidify us as the preferred industry partner," said Jay Bray, Chairman and CEO. "In the quarter we posted strong operational results, added almost 510 thousand customers to our servicing platform, funded over 25 thousand loans and launched enhanced technologies that improve the home ownership experience for our 2.7 million and growing customer base. We ended the quarter with the largest servicing portfolio in our company's history, are actively engaged in a significant pipeline and remain focused on creating value for our shareholders."

Company Results

For the third quarter, net income for GAAP purposes was $45 million or $0.46 per share. On an adjusted basis, the Company achieved net income of $51 million, or $0.52 per share, driven by recapturing customers through our originations platform and our strong servicing performance despite elevated amortization. The third quarter adjustments to net income include the net fair value marks and exit costs related to the originations builder channel.

Servicing Segment

The Servicing segment achieved GAAP pretax income of $31 million on average UPB of $390 billion for the third quarter. On an adjusted basis, which removes the impact of fair value marks, adjusted pretax income was $39 million or 4.0 bps.

Quarter Ended

($ in millions)

Q2'16

Q3'16

$

BPS

$

BPS

Operational

$

333

35.4

$

310

31.9

Amortization

(78

)

(8.3

)

(92

)

(9.4

)

Other mark-to-market

(231

)

(24.5

)

(8

)

(2.3

)

Total revenue

24

2.6

210

20.2

Expenses

159

16.8

154

15.9

Total other expense, net

(23

)

(2.5

)

(25

)

(2.5

)

Total expenses

136

14.3

129

13.4

Income (loss) before taxes (GAAP)

(158

)

(16.7

)

31

3.2

Mark-to-market

231

24.5

8

0.8

Non-recurring

—

—

—

—

Adjusted pretax income

$

73

7.8

$

39

4.0

Adjusted pretax income margin

22

%

19

%

Servicing contributed solid earnings during the quarter despite a $14 million increase in amortization which reflects our focus on improving portfolio performance and cost containment initiatives. Compared to the second quarter, besides amortization, the biggest change was due to the reverse clean-up call executed in Q2. In addition, we boarded $100 billion of loans, including $91 billion of subserviced loans that contribute less revenue on a bps basis; however, generate higher margin and significantly higher return on equity due to the limited capital deployed.

Quarter Ended

Q2'16

Q3'16

Ending UPB ($B)

$

369

$

453

Average UPB ($B)

$

378

$

390

60+ day delinquency rate

6

%

5

%

Annualized CPR

17

%

18

%

Annualized CPR, net of recapture

14

%

15

%

Modifications and workouts

15,282

13,506

The ending UPB of $453 billion is the highest in the company's history. We expect subservicing flow and originations volume to replace anticipated run-off in 2017. We remain actively engaged, along with our capital partners, in several large opportunities that could substantially add to our servicing portfolio.